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The
IRS announced its intention on Tuesday
to amend the regulations governing social welfare
organizations, a topic that has recently created an enormous
amount of political controversy, especially during the
recent scandal over how the IRS was mishandling applications
from groups that had “tea party” and other terms in their
names.

To qualify under Sec. 501(c)(4), under the
statute, a social welfare organization must be “operated
exclusively for the promotion of social welfare.” The IRS,
however, has applied a rule that requires organizations to
operate “primarily for the promotion of social welfare.” And
the method to determine which organizations qualified—a
facts and circumstances test—was not clear. During the
hearings looking into the scandal, members of Congress
questioned why the regulations say “primarily” when the
statutory language says “exclusively.”

The new
proposed rules (REG-134417-13) would provide that the
promotion of social welfare does not include
“candidate-related political activity,” a term that the IRS
defined by looking at existing definitions in federal and
state campaign finance laws. Candidate-related political
activity would be defined to include communications, grants
and contributions, and activities closely related to
elections or candidates.

Communications would
include:

Communications that expressly
advocate for a political candidate or party that is
clearly identified;

Communications made
within 60 days of a general election or 30 days of a
primary that clearly identify a political candidate or
party; and

Expenditures for communications
that are required to be reported to the Federal Election
Commission.

Grants and contributions would
include:

Any contribution recognized as a
reportable contribution under campaign finance law; and

Grants to Sec. 527 political organizations and
other tax-exempt organizations that conduct
candidate-related political activities (however, a grantor
can rely on a grantee’s written certification that it does
not engage in and will not use the money for
candidate-related political activity).

Activities closely related to elections or candidates
would include:

Holding voter registration
and get-out-the-vote drives;

Distributing
any material prepared by or on behalf of a candidate or by
a Sec. 527 political organization;

Preparing
or distributing voter guides that refer to candidates (or,
in a general election, to political parties); and

Holding an event within 60 days of a general election
(or 30 days of a primary election) at which a candidate
appears as part of the program.

The IRS
will also address the issue of which proportion of a social
welfare organization’s activities must promote social
welfare (i.e., “exclusively” vs. “primarily” or another
standard). Because of the importance of this issue, the IRS
is requesting comments before it releases any proposals. It
is also asking for comments on whether similar rules should
be applied to other tax-exempt organizations besides Sec.
501(c)(4) organizations.

State audits of abandoned and unclaimed property (AUP) have exploded in recent years. This report outlines the escheat process, common types of AUP, how different states are handling it and how companies can plan for potential audits and liabilities.

Don’t get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. Tax Section membership will help you stay up to date and make your practice more efficient.